The internet has fundamentally altered the dynamics for industries

Authors Avatar

Despite the arguments put forward by Porter (2001) and others, there is limited evidence to suggest that the internet has fundamentally altered the dynamics for industries. However traditional business models have changed dramatically with the advent of the internet.

Introduction to Internet, Business models and Industry dynamics

A business model (design) according to Slywotzky (1996) cited in Lee (2001) is defined as the totality of how a company selects its customers thereby defining and differentiating its offerings, defining the tasks it will perform or outsource, configuring its resource, market, utility for customers, and its profits. In the most basic sense, a business model is the method of doing business by which a company can sustain itself -- that is to generate revenue. Therefore the business model spells out how a company makes money by specifying where it is positioned in the value chain.

Business model refers to the entire system for delivering utility to customers and earning a profit from that activity.

There is been lot of literature on how internet in the form of electronic business has been influencing the industrial changes from the so called the traditional industry to e-business. Since the advent of internet there’s been a major shift on business transactions causing many companies to either invest in the new technology or closing down businesses. It is against this background that Porter (2001) and others put forward the arguments that internet has fundamentally altered the dynamic for industries thereby creating some new industries, such as on-line auctions and digital marketplaces. Further to this, Porter (2001) suggests that the greatest impact has been the reconfiguration of the existing industries that had been constrained by high costs of communication, information gathering, or accomplishing transactions. Instead of focusing on their own strategic goals, moreover, companies were forced to balance the many potentially conflicting objectives of their partners while also educating them about the business. Rivalry often becomes more unstable, and since producers of complements can be potential competitors, the threat of entry increases.

While many traditional companies experienced a major shake-up since the advent of internet, it could be suggested that internet has been a blessing and disguise to different industries depending on the management’s preparedness to adjust the business strategies. Some of those who failed, its because they failed to see and use internet as a tool for positioning a business in a competitive environment. Lee (2001) suggests that most companies are faced with challenges, not on how to imitate or benchmark the best e-commerce business model in their industry but on how to fundamentally change the mindset of operating the traditional business.

Since its advent, Internet has been and is sustaining or enhancing the existing business practices thereby providing companies with new sources of revenue and additional opportunities to offer new (information) services in addition to, and sometimes independent of, the traditional products or services sales. Ghosh (1998) cited in Lee (2001) believes that the Internet changes are possibly strategic and fundamental because the connectivity exists between information systems, and communication is two-way.

However it must be noted that it has affected the paradigm shift thereby radically changing the traditional way of doing business. Indeed the Internet has transformed the rules of competition and invented new value propositions. The business environment as a result has been adjusting to be able to manage multiple distribution channels, complicated supply chains, expensive IT implementations, strategic partnerships and flexible enough to react to market changes that affects the product life cycles. On the other hand Porter (2001) suggests that Internet brands have also proven difficult to build, perhaps because the lack of physical presence and direct human contact makes virtual businesses less tangible to customers than traditional businesses.

Internet and/or E-Business technologies on industry-level strategy

Porter (2001) urges that a wide misunderstanding and assumption that the Internet has been changing everything, rendering all the old rules about companies and competition is obsolete. The traditional business models had to redefine the competitive advantage; rethink business strategy; re-examine traditional business and revenue models, re-engineer the corporation and re-invent customer service thus changing the way many companies do business. It is the use of the Internet that ultimately create economic value. It is a fact that internet has brought along new challenges for companies around the world as it poses an opportunity and a threat to their businesses today. Misuse of internet has resulted into weakening the industries’ profitability, as rivals compete on price alone. Therefore it is no more than a tool that can support or damage the firm’s strategic positioning. However integrating its initiatives into a company’s overall strategy and operations is the key to using it most effectively. EBay’s role in the auction business according to Porter (2001) provides an important lesson demonstrating that industry structure is not fixed but rather is shaped to a considerable degree by the choices made by competitors. EBay has acted in ways that strengthen the profitability of its industry. In contrast to this, Buy.com for example acted in ways that undermined its industry by defining competition solely on price. According to Evans and Wurster (1997) e-commerce should be used to compliment both customer and supplier to reduce transaction costs significantly and to enable information to reach more people without sacrificing the richness of content. The internet features enables real-time pricing, customer interactions, and very low cost for distributing information goods and products or services can be priced below their unit cost even in the long term, as long as other e-commerce revenue models, such as online advertising and referral fees, are sustainable.

Join now!

Online business-to-business marketing or e-commerce has also emerged as a major player in the marketing arena. Modern businesses model through online shopping according to Lee (2001) has capitalised on the collection of detailed consumer behaviour information which couldn’t be done on a physical shopping trip. These paradigm shift has also allowed the commercial Web providers to collect not only the same information available in most physical transactions—identity, credit history, employment status, legal status—but also such additional information as specific history of goods and services searched for including other Internet sites visited and contents of the consumer’s data storage device.

...

This is a preview of the whole essay